Coordinating contracts for supply chains that market with mail-in rebates and retailer promotions

Abstract

Marketing promotions are pervasive in industry, yet too often they are introduced without regard to their potential impact on the whole supply chain. This paper considers a cooperative business environment where a manufacturer and a retailer work interactively in determining their independent sales promotional actions. We use a newsvendor-modelling framework to study coordinating issues when the manufacturer provides mail-in rebates directly to consumers while the retailer exerts promotional effort to further spur consumer demand. We find that quantity discount contracts in conjunction with buy-back achieve supply chain coordination. Successful coordination can result in significant supply chain improvement, which leads the retailer to order more units and exert higher promotional effort level. With numerical examples, we provide additional insights on the conditions for the manufacturer to offer rebates.

Keywords:

• supply chain coordination
• sales promotion
• contracts
• quantity discounts

Acknowledgements

The authors are very thankful to the editor and the referees whose detailed reviews and suggestions helped improve this article. Dr. Yang is supported by National Natural Science Foundation of China (No. 71001086 and No. 71471150) and Ministry of Education of Humanities and Social Sciences (Project 14XJC630008), and Dr. Chen is supported by National Natural Science Foundation of China (No. 71171165 and No. 71331004) and the Fundamental Research Funds for the Central Universities (No. JBK150502).